Final answer:
Outsourcing is the practice of transferring a firm's internal activities to external suppliers, often to cut costs and remain competitive. It differs from offshoring, which entails moving operations overseas to benefit from cheaper labor markets. Hence, the correct answer is option (4).
Step-by-step explanation:
The practice of transferring a firm's activities that have traditionally been internal to external suppliers is known as outsourcing. This business strategy involves hiring outside contractors to perform tasks a company once performed internally, such as accounting, payroll, or customer service. While offshoring also involves taking advantage of global labor markets, it differs from outsourcing as it refers to shifting a company's own operations overseas rather than contracting an outside firm.
For instance, many U.S. clothing corporations have moved their manufacturing out of the country to places like China, which can be a combination of both outsourcing and offshoring. Companies opt for these strategies to cut operation costs and remain competitive in the global market. It's important to note that these practices can result in job shifts and economic impact in the originating country.